Trump’s Tax Returns Reflect a Broader American Problem

Thanks to painstaking reporting by the Times and many other media outlets, we’ve known, for years, some basic facts about Donald Trump the businessman. He greatly exaggerates his wealth. Despite his claims to be an effective chief executive, many of the businesses that he runs, particularly his golf resorts, consistently rack up large losses, at least on paper. And, like so many wealthy Americans, he pays very little in federal income taxes.

The Trump tax information for the years 2015-20 that the House Ways and Means Committee released on Tuesday confirms this picture. Although the committee hasn’t yet released the former President’s full tax returns—a move expected in the next few days—the summary tables that they provided show that, during Trump’s four years in the White House, he paid a grand total of $1.1 million in federal income taxes. In 2020, his final year in office, he paid nothing.

Since Trump does have some money-making assets, including a licensing business and ownership stakes in two prime office buildings in New York and San Francisco that are run by someone else (Vornado Realty Trust), paying not a single dollar in taxes was quite a feat. We’ll have to wait for the full returns to see just how he pulled it off. But the committee’s summary data indicate that he relied on the same tax-minimization techniques he’s used for decades: taking suspiciously large deductions for things like real-estate depreciation, charitable contributions, and carryovers of previous losses; and being a genuinely bad businessman who overpays for many of his properties, saddling them with large debts that swallow up much of their revenues. (In a 2020 investigation, the Times found that, between 2000 and 2017, Trump’s beloved golf resorts lost more than three hundred million dollars.)

The committee’s report was the culmination of a multiyear legal battle to get access to Trump’s returns. The other big takeaway from it isn’t exactly new, either, but is extremely important. When dealing with rich and aggressive financial operators like Trump, whose annual tax filings can incorporate figures from hundreds of different business entities, and who employ high-priced accountants and lawyers to help them prepare their returns, the Internal Revenue Service often finds itself overmatched and put on the defensive. For that reason, it is very good news that the Inflation Reduction Act, which Democrats passed this summer, authorized a significant increase in funding for the tax agency to audit the wealthiest taxpayers.

The House Ways and Means Committee’s report and an accompanying one from the Joint Committee on Taxation, which helped analyze Trump’s tax returns, confirm that the I.R.S. and the former President have been tussling for years. In looking at the former’s President tax returns for 2016, which were filed in 2017, under a policy that required the agency to audit sitting Presidents, an I.R.S. agent noted the “complexity of issues being contemporaneously worked for tax years 2009 through 2013.” The report also notes that Trump’s liability for years prior to 2015 “have not been settled.”

With Trump in the White House, the I.R.S. didn’t start carrying out mandatory audits until April, 2019, following a request from Representative Richard Neal, the head of Ways and Means, for information. Evidently, the job fell on a single I.R.S. examiner, who was tasked with confirming the information from hundreds of Trump partnerships and affiliates, the incomes and losses from which Trump reported on his personal 1040s. The committee’s report quotes an internal I.R.S. memo, which stated bluntly, “With over 400 flow-thru returns reported on the Form 1040, it is not possible to obtain the resources available to examine all potential issues.”

Rather than authenticating each of the many, many deductions that Trump claimed, including charitable deductions for land easements and loans to his children, the I.R.S. examiner appears to have relied on the fact that the returns were prepared by professional accountants and lawyers, assuming that they insured the information from Trump and his businesses was correct. “We . . . fail to understand why the fact that counsel and an accounting firm participated in tax preparation ensures the accuracy of the returns,” the analysts from the Joint Committee commented acidly. The recent conviction in a case that New York prosecutors brought against the Trump Organization for tax fraud and falsifying company accounts suggests there is good reason for skepticism about anything to do with Trump finances. During the trial, his former accounting firm, Mazars, insisted it knew nothing about the activities that led to the conviction, including providing executives with company-funded apartments, car leases, and other personal benefits that the executives didn’t report to tax officials.

In analyzing Trump’s tax returns, the Joint Committee on Taxation highlighted a number of questionable practices, including deductions he took for business use of his personal plane, settling the Trump University lawsuit, and charitable contributions made in cash. The Joint Committee also questioned some loans that Trump made to his children, asking whether they may have been “disguised gifts,” and some expenses he claimed from his activities as a sole proprietor. “Audits of closely-held entities often find personal expenditures being improperly deducted as business expenses,” the Committee’s report noted.

When the I.R.S. eventually decided to closely scrutinize Trump’s return for 2017 and 2018, it expanded the number of examiners from one to three, which seems to have upset Trump’s expensive lawyers, who were in regular contract throughout. Citing an internal I.R.S. document, the report says, “the former President’s representatives were concerned about the team size of revenue agents, stating ‘the team size increased by 300%’ ” (i.e., from one to three). “The designated agents observed that the former President’s representatives included partners in a global law firm and the former IRS Chief Counsel.”

There, in a nutshell, is the challenge facing the I.R.S. when it goes up against wealthy people who have the resources, time, and temperament to fight them all the way. In the paucity of the taxes that he pays year after year, the scale of his tax-avoidance efforts, and the willingness to talk publicly about his ability to exploit the tax system, Trump stands alone. But the problem is a far broader one. By allotting an additional seventy-nine billion dollars throughout the next ten years for the I.R.S. to beef up its examinations of high-income taxpayers with complex returns, Congress has finally taken a significant step in the right direction, and, yet, Republicans are intent on reversing it. This week, the G.O.P. managed to cut some of that new I.R.S. funding in the omnibus spending deal that was reached, and they have vowed to eliminate all of it after taking control of the House in January. Without consistent political support from both parties, the I.R.S. will always be on the defensive. ♦

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